Ratio Magazine :: The Inside Track to East Africa’s Economies - Kenya: Deutsche Bank and Barclays Capital in the Lead for Kenya’s Euro Bond Issue

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Kenya: Deutsche Bank and Barclays Capital in the Lead for Kenya’s Euro Bond Issue

Wednesday, 08 October 2008

Despite the IMF’s cautious stance and a less supportive global financial environment, the Kenyan government is pushing ahead with its planned sovereign bond issue. Deutsche Bank and Barclays Capital have emerged as frontrunners for arranging the bond. By James Mbugua, Nairobi Star.

Deutsche Bank and Barclays Capital are leading the race for the lucrative contract to broker Kenya’s inaugural sovereign Eurobond on the international markets.

In this year’s budget, then Finance Minister Amos Kimunya included KES33bn to be raised through a sovereign bond to help bridge its KES100bn budget deficit. The Finance Secretary at the Ministry of Finance, Mr Mutua Kilaka, told the Star yesterday that the decision is set to be confirmed by a Ministerial Tender Committee “soon.” This could indicate a late October date given the impending country visit by Fitch Ratings Agency to review Kenya’s rating.

The two financial giants emerged tops following a review of bids submitted by international banks to Treasury for the right to arrange the USD500m (KES7bn) Eurobond. “We are going to pick the best two,” John Murugu, head of debt management at Treasury told the Star yesterday. “Whether it is Citi (Citibank) or whoever in accordance with our procurement procedures.”

But Kilaka confirmed that Deutsche Bank and Barclays Capital were ahead of Citibank into third place. Last week Standard Chartered Bank said it had not been picked. “Barclay’s Capital and Deutsche Bank are the frontrunners,” Kilaka said, squashing rumours that Citibank had been given the green light to arrange the bond.

A Eurobond is a bond issued in a currency other than the home country’s currency and floated outside the country. Such bonds are normally bought by banks and hedge funds. When Morocco floated a sovereign bond last year, it was oversubscribed by three times with 58% of buyers being asset managers followed by banks at 28%. However with the turmoil in the global credit markets some of the traditional investors may not bite.

According to Dyer and Blair Investment Bank chief, Jimnah Mbaru, the country rating will be very important to the pricing of the sovereign bond. “The way these bonds are priced is by taking the London Interbank Offered Rate (LIBOR) plus the country risk plus a premium,” said Mbaru.

Should Fitch raise its rating which currently stands at “B+” on negative outlook, the government may move full-speed with the bond issue. According to Razia Khan, the lead economist for Standard Chartered International, if the advisors ask Kenya to go ahead with the bond it will be because “they have confirmed customer interest in the bond at a certain level of pricing.”

This article was republished with kind permission from Nairobi Star.

Also read: Kenya: IMF’s Annual Article IV Consultations Attest to Economic Recovery

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